# Functional Replacement Cost

_Glossary_

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Settlement basis that replaces damaged property with modern, functionally equivalent materials that may differ from original ornate or obsolete construction.

Functional replacement cost pays to replace old or obsolete materials (plaster walls, antique millwork) with modern equivalents that serve the same function — often at lower cost than true historical restoration. It helps insurers and insureds settle older homes without paying for artisan replication unless a special endorsement applies.

Historic homes and custom finishes may need matching or restoration endorsements to avoid functional substitution the owner does not want.



Original lath-and-plaster walls are replaced with drywall at functional replacement cost; the owner receives a modern equivalent finish rather than full plaster restoration.